Peter Hirschfeld / Staff Photo
Vermont Compost Co. owner Karl Hammer speaks in front of the Vermont Department of Taxes on Monday in Montpelier. Hammer’s company is fighting $115,000 in back taxes, penalties and interest.

MONTPELIER — If Vermont wants its organic farm economy to grow, then it ought to end its tax on the compost feeding the soil.

That was the message Monday from Karl Hammer, owner of a Montpelier compost company that was hit with a $115,000 bill by the Vermont Department of Taxes last year for failing to remit sales tax on products sold in 2009, 2010 and 2011.

Hammer held a news conference Monday outside the Tax Department, where he delivered by hand his letter of appeal. Hammer and his supporters said the 6 percent tax on locally produced compost is at odds with the state’s push for an agriculture renaissance. And they said the levy was especially troubling given the exemptions that have been carved out for pesticides and conventional fertilizers.

“Taxing compost while other agriculture inputs, including chemical fertilizers, are not taxed feels very much like conventional agriculture is being incentivized, while organic agriculture is being penalized,” said Rachel Schattman, a customer of Hammer’s and owner of an organic vegetable farm in Monkton.

Hammer first learned he’d run afoul of state policy shortly after the Tax Department initiated an audit at the Vermont Compost Co. about a year ago. Hammer, who incorporated the firm in 1993, said he’d been under the impression that compost, as long as it was being used to grow food, was exempt from the sales tax.

But a 2009 rule makes explicit which farm inputs are exempt and which aren’t.

“And compost has never been interpreted to fit into any exemption,” Tax Commissioner Mary Peterson said Monday.

Peterson said confidentiality policies would prevent her from commenting on Hammer’s case specifically but that statute on compost was clear-cut.

Rep. Will Stevens, an independent from Shoreham and ranking member of the House Committee on Agriculture, has introduced legislation that aims to remedy Hammer’s problem going forward. As an organic farmer and customer of Hammer’s, Stevens said, he’s aware of the impact the 6 percent tax would have on a client base already operating on thin margins.

Stevens’ legislation would exempt compost from the sales tax.

Stevens said the state needs to begin fostering pro-growth strategies for compost more generally, in light of legislation passed in 2012 that will prohibit the deposit of any organic material into Vermont landfills beginning in 2020.

Ending the sales tax on compost, Stevens said, would be “a win-win situation in terms of our soil-to-soil approach to both food production and solid waste management.”

“And the savings would incentivize the purchase and use of a product that helps build carbon and increase organic material in the soil while recycling nutrients along the way,” Stevens said.

Peterson said her department had no position on the legislation, but the bill has the support of the Vermont Agency of Agriculture, Food and Markets, according to an official there.

Hammer’s bill includes $20,000 in penalties and $10,000 in interest. Asked how it would affect his 44-acre operation up the road from downtown Montpelier, Hammer said, “We like to think we’d survive,” though he said he worries about similar levies on unpaid taxes in 2012 and 2013.

“We’ve done a little canvass of customers, many of who would feel uncomfortably compelled to help out,” Hammer said.

Rep. Janet Ancel, chairwoman of the House Ways and Means Committee, said the issue has generated enough concern to warrant at least preliminary testimony in her committee next year, though she wouldn’t commit to pursuing anything.

“I think we would ask the same questions we always ask when we’re asked to create new tax expenditures: What’s the fiscal impact? What’s the purpose behind the tax expenditure? And how does it relate to similar kinds of products?” Ancel said. “I don’t know enough at the moment where this would fall when we ask those questions.”

Dave Rogers, policy adviser for the Northeast Organic Farming Association of Vermont, said the issue is of considerable importance to the 142 fruit and vegetable growers certified organic by his organization.

“High-quality compost is a linchpin to organic production systems … and many (farms) spend tens of thousands of dollars per year purchasing compost and ... at 6 percent, we’re talking about thousands of dollars of tax that shows up in the price of food and in the cost of production,” Rogers said.

Good tax policy, Rogers said, “should advance and support the production of goods and the adoption of practices that yield social and environmental benefits, and compost has so many elements that move us forward with this.”

As for Hammer’s tax debt, Ancel said she’d prefer to leave that between him and the Tax Department, even if the Legislature opts to exempt any future sales of compost. Lawmakers in 2011 passed legislation forgiving retroactively tax bills associated with the failure to remit taxes owed on remotely accessed software — the so-called cloud tax — a practice Ancel said she doesn’t want to become a habit.

“I think it’s very poor policy for the Legislature to step in and kind of remedy those situations,” she said. “I would much rather have the department exercise some discretion in its enforcement efforts than to have us come in for whoever it is that is able to make the loudest complaints, or who has the best presentation or the strongest lobbyist or the most effective legislator.”